Salaries are up -- slightly

More get raises, but hikes still at last year's lows

SAN FRANCISCO (CBS.MW) -- Salaries are improving, but only slightly: More workers will get raises this year, but the average increase still is at historic lows, according to the latest Budget Salary Survey by WorldatWork, a trade group of human-resource professionals.

Eighty-seven percent of employees will get raises, up from 83 percent last year, but still far below the 94 percent who received an increase in 2001, according to the annual survey of about 2,700 U.S. companies employing 12.7 million people.

Raises will average 3.5 percent, the same increase received last year, and a historic low for the 31-year survey.

Still, "it's good news because more employees are getting increases and actual increases aren't going down," said Doug Grieser, a WorldatWork researcher.

Average raises tend to mirror inflation, which rose 3.3 percent in the past 12 months, as measured by the Labor Department's consumer price index. Excluding food and steeply-rising energy costs, the consumer price index rose 1.9 percent in that time.

"There's usually a correlation between inflation" and base pay raises, Grieser said. If inflation "is going up or down you'll see a similar movement in the actual increases."

Salary hikes have been declining since the early 1990s when they averaged about 5.6 percent and inflation was about 5.4 percent. In 1981, when inflation was running about 10.3 percent, salary raises averaged 10.6 percent, according to the WorldatWork report.

Companies say they'll proffer higher salaries next year -- 3.7 percent on average -- but projections in the last few years have run higher than actual payouts, Grieser said. Last year, firms estimated a 3.7 percent pay hike this year, rather than the actual 3.5 percent evidenced in the current survey.

More firms look to bonuses

While companies aren't exactly pumping money into their base pay budgets, more are rewarding their hardest workers: 77 percent report using at least one form of performance-based bonus pay, up from 75 percent last year, and 66 percent in 2001. Bonus pay includes incentives to individual workers as well as company-wide awards programs.

Companies expect to give their hourly workers bonuses that average 4.7 percent of base pay, while nonexempt salaried employees should receive bonuses averaging 5.4 percent of pay, according to estimates for the year in the survey.

Salaried employees (exempt from overtime pay) should receive bonuses equaling about 11.8 percent of their salary and executives and officers will see bonuses that equal 34.4 percent of salary.

"Employers are trying to find ways to motivate and retain their employees," Grieser said. "They might not be able to do it in the fixed-cost way of increasing your base pay, but maybe they're able to include you in an incentive or bonus program, which is not a fixed cost so it's not a year after year allocated expense."

Executive salary hikes span widest range

The 3.5 percent average hike conceals some broad variations in how companies are compensating workers at different job levels.

While the majority of firms will give workers a 3.5 percent to 4 percent raise, 6.5 percent of companies are giving executives and officers no raise at all.

Only about 3 percent of workers at other levels, including exempt salaried and hourly workers, will face a pay freeze.

At the other end of the pay-hike scale, 3.6 percent of companies plan to give executives salary increases of 7 percent to 30 percent.

For workers at other job levels, fewer than 2 percent of companies are offering raises of 7 percent or higher.

Decline in stock options

Employees at all levels can expect fewer stock options. With companies likely facing the need to expense the benefit next year, many are reducing their stock-option grants, though it remains one of the most common forms of equity incentive.

Seventy-eight percent of companies will pay executives and officers with stock options this year, down from 84 percent last year.

Meanwhile, 58 percent of companies will proffer stock options to exempt salaried employees, down from 63 percent a year ago.

Twelve percent of nonexempt salaried workers will receive stock options, down from 14 percent, and 13 percent of hourly nonunion workers, down from 15 percent last year.

Andrea
Coombes

Andrea Coombes is a personal-finance writer and editor in San Francisco. She's on Twitter @andreacoombes.

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